RSF Social Finance: Making money, making change

February 17, 2013

Happy customers of Revolution Foods

If you have a few extra dollars in savings, and you’d like to earn more than 0.00001% interest or whatever it is your bank or money market fund is paying, and you’d like to support socially-conscious businesses, you’ll want to take a look at RSF Social Finance.

RSF Social Finance is a financial services organization of modest means (about $145 million in assets under management) that is bursting with big ideas and bold rhetoric. It calls itself “a leader in building the next economy.” It seeks to generate “social and spiritual renewal through investing, lending and giving,” Its mission is to “transform the way the world works with money.”

Whew. What’s going on here?

To find out, I visited RSF Social Finance’s offices in the Presidio complex in San Francisco last week to talk with Don Shaffer, the organization’s president and CEO.

At the simplest level, RSF looks and acts very much like a bank: Its flagship product, the Social Investment Fund, takes deposits and makes loans to so-called social enterprises, a term that’s widely (and often carelessly) thrown around to describe businesses or nonprofits whose intention is to improve society and the environment.

Deciding what qualifies as a social enterprise is subjective, at best. That said, the RSF Social Investment Fund supports companies and nonprofits that, by all appearances, do great work. Among them:

Guayaki, which sells organic Fair Trade yerba mate drinks and tea leaves, while providing jobs to poor people and restoring rainforest in South America. [Sustainability consultant Jib Ellison tells me that he loves the drink and the company.]

Indigenous, a clothing company that helped pioneer Fair Trade Certification for apparel and linens, and supports weavers and knitters in South America.

Common Market, a distributor that connects farms in the Delaware Valley of Pennsylvania, New Jersey and Delaware with institutional kitchens, retailers and restaurants.

Altogether, RSF has made about $275 million in loans since its beginnings in 1984. (The initials stand for Rudolph Steiner Foundation, which was inspired by the Austrian philosopher, social reformer and ecologist.) The Social Investment Fund currently finances about 85 businesses and nonprofits.

“We’re serving social enterprises that don’t fit the typical bank calculus,” Don told me, either because they are too small or too complex. Its current loan rate, known as RSF Prime, is 4.75%.

The Social Investment Fund has about 1500 investors, who put up a minimum of $1,000 and get a three-month note that functions much like a bank certificate of deposit. The current interest rate is 0.75%–yes, that’s more than you can get today from your bank or money market fund, but it’s evidently not the reason why people trust their money to RSF. “People don’t approach us to chase yield,” Don said.”They approach us for our values and operating principles. But it is very competitive return.”

Don Shaffer

RSF, he explains, wants to get people to think differently about their money, not merely by connect their investments with their values but by getting to know the businesses and nonprofits they are supporting. RSF holds regular gatherings of its investors, borrowers and staff during which they talk business and help set future rates. As Shaffer explained in a blog post:

We believe this is the first time that a lending institution has facilitated meetings between investors and borrowers to determine loan pricing. With RSF staff at the table facilitating the conversations, all three stakeholders are visible to each other and engage in a direct and transparent exchange to understand intentions, motivations, and needs.

That’s interesting, and a stark contrast to the way business is done on Wall Street.

“Our financial system today can be described as opaque, complex and anonymous, and based on short-term outcomes,” Don said. “Most of us simply don’t know where our money is going anymore; we are almost completely disconnected from the real consequences of our economic and investment activity.”

To remedy that, RSF seeks to be transparent, simple and personal. This is one reason why RSF remains small, Don conceded. “We’re interested in continuing to grow,” he said, but the organization “is not just about more transactions. It’s about relationships and the quality of relationships, and we don’t want to cut corners.” The company has added about 500 investors in the last two years, at the same time as “the quantity and quality of social entrepreneurs is rising,” Don said.

Ah, yes, there’s that term again: Social entrepreneurs. Which means what, I asked Don.

“Companies that are deeply committed to social and environmental change,” he said. “For me, a social enterprise is an organization, whether it’s for profit or nonprofit, that would not exist were it not for the social and environmental impact it wants to create….They have a triple bottom line commitment that goes through every aspect of what they do.”

And yet…Bill Gates’ original goal at Microsoft was to put a computer on every desk–that’s social change on a global scale. Facebook connects 1 billion people in new ways. My iPhone, iPad and iBook improve my life in small ways every day, and, like Guayaqi and Indigenous, Apple indirectly provides employment to poor people in the developing world. Are Bill Gates, Mark Zuckerberg and the late Steve Jobs social entrepreneurs, I asked.

“I would say they are not,” Don replied. “There would have been a computer on every desktop anyway, Bill Gates or no Bill Gates.”

I’m not persuaded. Most businesses that thrive over time do so because they solving a problem or making the world a better place. Starbucks, McDonald’s, Whole Foods, Pfizer, even Walmart–are they social enterprises? If not, I’d like to know who gets to decide and by what standards.

As it happens, and to its credit, RSF is trying to be systematic about its lending practices. It uses a survey from B Lab to examine the social and environmental impact of its borrowers. In fact, the philanthropic arm of RSF has supported B Lab, and Shaffer sits on the B Lab board.

What I find most encouraging about RSF Social Finance, B Lab and others–the people at Kiva, Paul Herman and his HIP Investor advisory firm, the work of Cary Krosinsky and his co-authors in Evolutions in Sustainable Investing–is that they are going beyond the pioneers of socially responsible investment, who got SRI investing off the ground by screening out “bad” companies that invest in alcohol, tobacco or firearms. Now, Don says, the idea is to steer money to the best ideas. “It’s all about finding out what’s good,” he says. And that’s good.